South sees bump in construction backlog but sector still flat overall

The South is rising again, at least in comparison to construction activity with the rest of the country.

Construction across Southeast is still weathering economic downtown.

Construction contractors looking for jobs should keep their eye on Dixie, says Anirban Basu, the Maryland-based chief economist for the Associated Builders and Contractors, whose Mississippi chapter is headquartered in Pearl and has an office in Gulfport.

“The South, which includes a number of rapidly expanding commodity rich states, continues to be the top performer in terms of producing new opportunities for contractors,” Basu said in an analysis released in late May.

Basu uses construction backlog as a key gauge of construction activity. As an indicator, it measures the amount of construction work under contract to be completed in the future.

The South is leading in that backlog category, he said in the report.

“The South continues to be a top performer and registers the lengthiest backlog at 8.88 months,” Basu said.

He added the middle states have the shortest backlog at 6.34 months but emphasized that every region other than the Northeast is having at least a slightly higher backlog year-over-year.

The backlog nationwide has decreased quarter-over-quarter, he said, but predicted “consumer spending increases likely will translate to continued momentum in commercial construction.

The South’s construction backlog was roughly flat during the first quarter but more recently the region’s backlog rose seven-tenths in the first month of the second quarter over the same month the year before. “No other region has generated an increase in backlog that large,” he said.

The workload of architects is another indicator of future construction activity. That indicator — known as the Architecture Billing Index, or ABI — has fallen into negative territory after five months of positive readings, according to Kermit Baker, chief economist for the American Institute of Architects.

As a leading indicator of construction activity, the ABI reflects the approximate nine-to-12-month lag time between architecture billings and construction spending.

Any score below 50 reflects a decrease in billings. The American Institute of Architects reported the April score was 48.4, following a mark of 50.4 in March.

Baker said the decline in demand services is not terribly surprising, considering the continued volatility in the overall economy.

He theorized that the mild winter may have accelerated design billings, producing a pause in projects that have moved ahead faster than expected.

The South reported in with an ABI of 49.0 while the Northeast showed a 51.0, Midwest 50.1 and West 48.0.

By sector, commercial-industrial had a 53.8 ABI and multi-family a 50.5. The hotel sector has been the strongest area for architectural work followed by manufacturing, according to Baker.

The South’s ABI was doing reasonably well until the last month or so, Baker said in an interview last week. “The South has been a tale of two areas. The South Atlantic has been dramatically overbuilt and the South Central with its oil-based economy has been doing pretty well.”

In Mississippi, homebuilders don’t expect to see much momentum until a sustained jobs rebound occurs, said Marty Milstead, executive director of the Homebuilders Association of Mississippi, an organization that had 4,500-plus members at the peak of the building boom last decade but today is about 2,000 members.

Applying anecdotal evidence and an “eye test” consisting of reviewing single-family home building permit numbers, Milstead said he sees some improvement in recent months. “It’s a slow increase,” he said. “I think what we’re seeing is that builders’ confidence has gotten a little bit better because the economy has improved some.

“The fact we’re talking about improvement is a good thing.”

No over-supply is evident in Mississippi, he said, and noted builders expect pent-up demand will be unleashed as soon as an up-tick in employment occurs.

The Coast has the most room for improvement in a return to more normal homebuilding activity, according to Milstead. “Jackson is actually an improving market” for home construction, he added, though he emphasized “it’s nothing that folks are getting excited about.”

The state’s northeast corridor is also showing “a little pick up” in residential activity, Milstead said.

The good news overall, he said, “is that we’re moving forward.”

Customary supply-and-demand economics are not at work in new home building at the moment, according to Milstead. While demand for new homes is down prices have not necessarily followed with declines of their own, he said.

For that to occur, the cost of the materials to build the home as well the labor needed must decline. So far that is not happening, Milstead said.

Roofing costs have fluctuated with fuel costs and lumber prices have risen and fallen as well and concrete prices have risen as the cost of delivering it has increased, he noted.

“Your typical economic supply-and-demand doesn’t necessarily go hand-in-hand here,” he said.

Prices for ready-mix concrete are stable for now, according top Harry Lee James, executive director of the Mississippi Concrete Industries Association. “They don’t float as much as the some of the other construction materials,” James said of ready-mix concrete.

“The delivery costs are the immediate costs,” though a rise in gasoline prices is not always accompanied by an increase in concrete pricing. “Many of the contracts are signed in advance and may or may not have a float on them for materials delivery,” James said.

The Ridgeland-based Mississippi Concrete Industries Association has nearly 80 members, a number that moves up and down with the level of construction activity.

James said a turnaround for his industry and the construction industry overall seems to be “a number of years away.”

Still, “there are projections that things appear to be moving,” he said. “The headlights are pointing uphill but it’s still pretty flat out there.”

The Southeast continues to be tops in producing new opportunities for contractors.

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